One of the most stressful aspects of retirement can come down to real estate. Many retirees face several choices, like deciding whether to downsize, buy a second property, keep the family home, or move to a senior community. Realtor.com® recently featured some of the biggest mistakes experts say retirees most often make with real estate matters, including:
Holding off too long on moving.
If a retiree wants to purchase a second property, real estate pro Jon Sakalas, cofounder of 5280 Colorado Property Management, suggests the best time to do that is to purchase the property in your 30s or early to mid-40s. He says you’ll reap more financial rewards that way. The vacation home could be used as a rental property that can be rented out for possibly up to 20 years then. When you are ready to retire, you can sell that house and take the equity and then buy what you want in the location you want.
Read more: Is Having a Mortgage in Retirement So Bad?
Tapping retirement funds to pay off a mortgage.
Retirees ideally should head into retirement mortgage debt-free. But accessing funds from your retirement account isn’t usually the smartest way to do that. “This can be troublesome if people are using pretax money, such as IRAs, to pay a monthly mortgage bill,” Pedro Silva, a financial adviser with Provo Financial Services in Shrewsbury, Mass., told realtor.com®. “That means they pay tax on every dollar coming from these accounts and use the net amount to pay the mortgage. This can be a significant percentage of someone’s monthly cash flow.”
Deeding the property to children.
You may want to deed the property to your children as a gift, if you’re downsizing into a new home. But you might be better off selling the property to them than deeding it to them. If you deed them the property, you could face an unnecessary tax bill, warns Michael Hottman, associate broker with Keller Williams in Richmond, Va. Hottman points to several reasons why deeding may not be advantageous: You could miss out on the $250,000 capital gains tax exclusion on the property ($500,000 for a married couple) and the kids could inherit the “basis,” or original price, which is then used as the starting point to calculate capital gains. So when they go to sell the home, they could face a tax on the difference between the current home’s value and its basis. If the property did appreciate over that time, they could be looking at a pricey tax bill. Retirees will want to consult a tax specialist to help them decide the best option in such cases.
Source: “5 Major Mistakes That Retirees Make With Real Estate,” realtor.com® (April 13, 2017)
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